Thursday, March 28, 2013

Just a few
days ago, I was disappointed by Jeroen Dijsselbloem ... and now I am excited
and would like to give him a compliment, even a great compliment!

He
challenged the financial sector, telling them that from now on it would not be
the taxpayer who would pay for the risks they have taken, but themselves and
that the party - where profits were private and losses borne by the community -
was over!

Naturally
he received a lot of criticism for his surprising stance, both as leader of the
Euro group and as Minister of Finance of the Netherlands. The criticism came, not
surprisingly, from people who had set aside a lot of money in the Cypriot
banks. And it came from politicians who said that, okay, he was right to
finally tackle the financial sector, but he should have done this silently and
not openly and publicly as it would stir emotions in the financial markets and
among savers who would no longer trust that their money was safe in the banks. Thus
it could prompt a widespread run on European banks when the next banking crisis
emerged in another European country. And if that country were a large
country, then the whole euro system might tumble. It would not be the first
time that a chain reaction would damage the world financial
system. This young and inexperienced Dutch minister of finance has behaved
incompetently and irresponsibly. He should be replaced as soon as
possible by someone more experienced who is familiar with financial markets and
knows what one can say and do, and what one cannot say and do!

Since late
Tuesday evening I have followed the harsh and emotional attacks on
Dijsselbloem. What was actually the criticism? No more than that he had sown
anxiety among people who work in the financial markets or among people who
defend the markets through thick and thin. And, obviously, among savers who
have put more than 100,000 euros in the Cypriot banks that are now being
"cut up" or dissolved.

Dijsselbloem’s
new policy is clear: "Shareholders, bondholders and big savers: from now
on, you will have to contribute to the rescue or restructuring of a bankrupt
bank."

Good, I
think, finally there is the beginning of a change of policy vis-à-vis the
financial sector! It's high time!

The only
exception I would make is for people and companies in Cyprus that are "unreasonably"
affected by the new policy of Dijsselbloem and his colleagues. If a business
customer of a bank has all his money in a bankrupt bank, it seems unjust that
he will lose an important part of the money that exceeds 100,000 euros. If I
would still be in the position that Fondad would have over 100,000 euros on a
business bank account and I would have established Fondad in Cyprus instead of
the Netherlands, I would now protest and say that our work was made impossible
if our bank was dissolved and we had lost a significant portion of our
revenues.

For the
rest, I have nothing but praise for the initiative by Dijsselbloem, and his
openness about it. Without that openness, without the media echoing his words,
the financial sector could have continued to lean backwards and let the
taxpayer pay for its risks, revenues and losses.

I hope
Dijsselbloem’s initiative will be the beginning of a democratization and
socialization of the international financial system, in which governments and
politicians take back the reins instead of, as they have done way too long,
giving the financial sector free play. The current crisis in Cyprus, in Europe and in the rest of the world, gives
good reasons for such democratization and socialization.

Friday, March 22, 2013

In the case of Cyprus, the error of Jeroen Dijsselbloem, the Dutch finance
minister and head of the Eurogroup, as well as of his European colleagues, is that they
forgot about democracy. You cannot abolish democracy, even though in the cases of Greece
and Italy
it appeared that you could replace democratic governments by technocratic governments.
Also, Dijsselbloem and his colleagues underestimated the anger and the fear of
savers like you and me, as well as the "investor sentiments" of the people
operating in the financial markets.

Of course, in principle Dijsselbloem is in favour of democracy. But then he,
and his colleagues, should have welcomed that in Cyprus democracy
- the parliament - has triumphed and not the technocracy.

More democracy in economic policy making in European countries is urgently
needed, if only because its citizens are rapidly losing confidence in their
leaders. Yes, they have chosen them, but not because they trusted their leaders
to do a good job but because they had no alternative.

More democracy in economic decision-making and more
protests of undignified citizens, are also urgently needed to remind policy makers
that they should think better about how to address the crisis of Cyprus, and of
the euro. And, last but not least: both the protests and the rethinking should help to change course!

Economic policymaking is too narrow-minded, as it is not embedded in a broader vision of what is at stake in society. Over
the last decades, it has lacked that broader embedding and,
instead, has left much of the thinking and acting to the players in the
financial markets, especially the bankers. This has not only given way too much
space to idiotic things that brought our economies to the brink of bankruptcy,
but also led to recurrent crises in Latin America, in Asia, in Russia, until
eventually the system was hit in its heart, that is, the U.S. and Europe.

One pretends that small countries such as Greece, Portugal and Cyprus are the problem,
but they are not. The problem is the capitalist system with the dollar as the
key international currency and the unbridled financial markets with their
agents operating in it to enrich at the expense of others. That is the problem.

Not the poor but the rich are the problem!

Not Greece
or Cyprus
are the problem, but the United States and the
maintenance of the dollar as the key currency of the system, are the problem!
And let’s not forget that from the sixties onwards, sensible plans to reform
the system have been proposed and even discussed by policymakers in endless
meetings (eg in the early seventies by the so-called Committee of Twenty, a
predecessor of the current G20). But no action was taken. Instead, an
international monetary and financial system was maintained in which the United States and the
U.S. dollar play a dominant role.

As we all know, economic policymaking is a matter of balancing political
interests and choosing a policy that underpins political interests and keeps
them intact - or changes them!

We also know that economic policies support a distribution of power between
people and groups, or, to mention an old-day distinction that still applies: between
labour and capital.

"The" economy is the result of human action
and the power of people and groups who participate in it, and that is almost
everyone. Consequently, economic policymaking is not "neutral" or
"technical" as technocrats want us to believe, it is political.

What policy makers, politicians, entrepreneurs and journalists present as
"sound" economic policies is equivalent to satisfying the needs of
people working in the financial markets. In this way, economic decision-making
has become dependent on "investor sentiments" and short-term horizons
of the people who work in the financial markets.

It is not only the 'day traders' whose capricious
behaviour they respect, but also those who make investments decisions for
pension funds and other institutional investors.

By adopting "neoliberal" policies, governments have become the slaves of bankers and other powerful people in the
financial sector. They have little
impact on what is economically happening within countries and between
countries. This explains their powerlessness to solve the euro crisis and other
crises.

The financial markets not only have a too dominant role in the current world
capitalist system, but they are also a major cause of the emergence and
persistence of the crisis, both the international and the European crisis.

If one wants to address the crisis in Europe
and the global financial and economic crisis in a more serious way, one should
begin by reforming capital markets rather than labour markets.

We need more, rather than less, democracy in economic policymaking. This
applies both for individual countries and for the joint international approach
to the euro crisis and the international crisis.

Dijsselbloem and his colleagues should welcome the fact that the parliamentarians in Cyprus and the
people who elected them, took action against technocratic decisions made by the
Eurogroup and the government of Cyprus.

Without noise, resistance and protests, there is no democracy. Dijsselbloem, as
a former parliamentarian, would or should agree with that.

Thursday, March 7, 2013

With a friend who belongs since long to the Fondad Network (John Williamson) I had a discussion on the austerity debate (see, for an interesting article,"Paul DeGrauwe and the Rehn of Terror" by Paul Krugman).

In one of my letters I said:

"Following up on the austerity debate, I see a
serious neglect of the world system aspect of the crisis in most analyses, in
both the euro crisis and the international crisis. Rather than focusing on the
way the crisis has emerged and developed, the debate focuses completely on the
worrisome level of government debt, "inflexible" labour markets, and
insufficiently regulated and supervised banks -- to name three features that
experts, politicians and journalists discuss endlessly.

This framing and narrowing down of the discussion is
fair enough if its purpose is to focus on certain aspects of the crisis. But it
is not fair if its purpose is to prevent a broader and more fundamental analysis
of and response to the crisis.

A second flaw in the debate about the (euro) crisis
is that most experts, politicians and journalists reduce the debate to policies
that they see as adequate responses to the crisis. So they present austerity as
the solution to the government debt problem, "reform" of labour markets
(i.e. reducing wages and making it easier to fire workers) as the
solution to the problem (what exactly is the problem?) of inflexible labour markets, and better regulation and
supervision as the answer to the problem of having to bail out banks.

I have long hoped for a more serious
discussion of the crisis that would have departed from how the crisis emerged
and developed in the international capitalist system. As you know, it started in
some weak, sensitive parts of the system, spread to other parts of it, and ended
up in creating, among other, the euro crisis. A serious analysis of the crisis
would have suggested other responses than the current ones. Current policy
responses are basically geared at crisis management instead of crisis
resolution and crisis prevention.

I find it depressing and a shame that most analyses are superficial, flawed and
misdirected. In such way it will be difficult, if not impossible, to resolve the
crisis and prevent future crises.

Finally, I think that we should analyse the crisis
not only from an economic point of view but also from a political and (socio)
psychological point of view. Otherwise, we will not come up with proper
responses."

The picture above is of Robert Triffin and me, taken during an interview I had with him in 1985 at his room at the University of Louvain-la-Neuve. I have written several articles about Triffin, when he was still alive and active, and after he passed away in 1993. In my bio as member of the board of the Triffin Foundation you can read a little bit of how important Triffin has been for me, and still is.

About Me

As a kid I liked numbers and the sound of strings. I considered studying engineering but chose social sciences because of my interest in people. I combine a theoretical interest with a practical, social approach which brought me to the sphere of policy research. I am interested in reducing the disparity between poor and rich, between the powerful and the less powerful.
In 1973 and 1982 I lived in Latin America. In the mid-1980s, I was able to create an international forum to discuss the functioning of the international monetary system and the debt crisis, the Forum on Debt and Development (FONDAD). I established it with the view that the debt crisis of the 1980s was a symptom of a malfunctioning, flawed global monetary and financial system.
I was one of the driving forces behind the creation of the European Network on Debt and Development that was established at the end of the 1980s to help put pressure on European policymakers.
In 1990, before the beginning of the Gulf War, I cofounded the Golfgroep, a discussion group about international politics comprising journalists, scientists, politicians and activists that meets regularly.
The website of FONDAD is www.fondad.org